Network marketing is a popular trend with a relatively simple point of entry. This business structure works well for people looking to start a home-based business with minimum investment.
Network marketing is exactly what its name suggests. As a marketer, you create a network of people to who you sell products, also called your downline, and this business allows you the unique opportunity to earn through active and passive income.
If you are sales-savvy and excited to start a network marketing business, it’s important to know what to expect in terms of start-up costs. The average cost for starting up a network marketing business is $5,900. It could rise to a maximum cost of $11,600, while the minimum investment you’d require is $1,300.
This article will take you through the different costs you’d incur when starting your own network marketing business. I have tried my level best to answer all of your questions. Read on to learn more.
- How Much Does It Cost To Start A Network Marketing Business?
- Start-up Costs In Network Marketing
- Types of Network Marketing
- Pros and Cons of Starting A Network Marketing Business
- Do you really need a big budget to start an MLM or Network Marketing Business?
- In Conclusion
How Much Does It Cost To Start A Network Marketing Business?
Multi-level marketing (MLM) or network marketing offers marketing salespeople a chance to work according to their preferred hours and move up the corporate ladder.
This business structure is popular because it allows people to be the boss of their own careers with direct selling and network marketing options worldwide.
Network marketing’s current market size is around $25.8B, with a gross margin of 65%. This lucrative business requires a great deal of hard work and dedication; therefore, it’s important that you enter this realm with knowledge and expertise.
One of the most consequential points to consider when starting a new business is the start-up cost. Let’s find out how the start-up cost given above is split into various components.
Start-up Costs In Network Marketing
|Cost Categories||Maximum Cost|
|Marketing industry expenses||$100|
|Website development expenses||$200|
|Training and education of staff||$1000|
|Marketing and advertising expenses||$2500|
|Office rental cost||$7000|
Now, we will discuss each of these expenses individually.
- Marketing industry expenses include ticketing platform fees that cost $100.
- Website development is important for any business to thrive in the current market, and this is an area where it’s worth spending money as it gives a greater return. Website expenses include domain name and business email hosting service.
- For a network marketing business to run smoothly, it requires very effective software that automates different parts of the business to save time and effort. Efficient use of technology can save you from increasing personnel costs and overheads. Some software costs that are recommended for optimal operations are:
- Email marketing
- Project management
- File hosting service
- Internal communication
Design programs and social media management tools are optional but can help you gain a competitive edge over other companies.
- The success of a network marketing company depends on its staff entirely. For this reason, training and educating them is a crucial aspect that can’t be ignored. Training exercises can be conducted on office premises or through online learning sessions, and the cost for this can go as high as $1000.
- Marketing and advertising costs are integral for any start-up. From business cards, networking membership fees, affiliate marketing commission, influencer marketing to press and Google ads, the list is exhaustive.
- While this investment is optional, and you can choose your preferred advertising medium as you grow your business, some of these expenses are unavoidable. For example, customer research and surveys are essential before you venture into a new business. Moreover, you need some form of marketing avenue to promote your business to the masses.
- The decision to rent an office space depends on your business structure entirely. You might be able to establish and operate your network marketing business digitally, eliminating the need for a physical location. However, the need to rent office space may arise as your business grows bigger. Office expenses would generally consist of rent, utility costs, and operating overheads.
Types of Network Marketing
There are two categories of network marketing:
- Top-tier Direct Sales
- Multi-level Marketing
Most people are aware of MLM but not Top-tier Direct Sales. Both have some elements that are similar to the other, but they also have their variances. Here is how the two are different from each other.
Top-tier Direct Sales
This marketing form is more focused on selling products than recruiting new people into the network.
The central idea is to earn money by selling higher-priced products personally, and through people, you enroll (up to 3 levels usually). This way, marketers can make money quickly since they are selling higher ticket products.
In MLM, selling products and recruiting others to join go hand in hand. Since the price points of products sold are relatively small, your earnings are limited.
In this form of marketing, you earn money mainly by growing your team and not through the sales of the products.
Having discussed what network marketing is and the cost you should expect to incur when starting your business, here are a few factors to help you decide whether you are ready to enter this competitive market.
Pros and Cons of Starting A Network Marketing Business
Every business has its advantages and disadvantages. While the pros act as encouragement for newbies, the cons aren’t meant to dissuade them from venturing into this business space.
The purpose here is to equip you with all the knowledge you need to make your network marketing business lucrative.
Pros of Network Marketing
- The entry point for this space is relatively easy in terms of knowledge and experience. Moreover, the initial investment is also low.
- It gives you the freedom to dedicate flexible hours to your work.
- You don’t necessarily need a physical space such as a storefront or office to kick start your business.
- It is scalable and utilizes preexisting business systems to organize a team and sell products. You can follow best practices that have been developed over the years to make your business profitable without having to ‘reinvent the wheel.’
- Multi-level marketing offers consultants the chance to earn higher commissions by growing their network. For this reason, their interests are closely aligned with company targets, a feature that is uncommon in traditional business structures. The more your consultants grow and earn, the higher your turnover.
- Even though the company is focused on selling selected products, it has no overhead costs such as storage, packaging, etc.
- It has higher gross margins, around 65%, which helps you scale your business quickly and manage costs easily.
- There’s no limit to the amount you can earn with a network marketing business. The better your interpersonal and business skills, the more persuasive you can be as a seller. Additionally, the business expands in the form of a network; therefore, its potential for growth is infinite.
Cons of Network Marketing
- Network marketing is a crowded space, making it difficult for start-ups to gain customers’ attention and build trust.
- For a business that focuses on both active and passive income, there’s no guarantee of a consistent paycheck. This means that if there are fewer transactions in a month, you earn less. Therefore, it is difficult to predict payment patterns.
- Consultants can grow tired of selling the same products and services repeatedly. In order to keep them interested and excited about your business, you have to expand product lines and revenue streams constantly.
- MLMs can operate with minimal face-to-face interaction, which may result in your team feeling isolated and less motivated to work harder. This lack of physical interaction also makes it difficult for the consultants to build trust with the customers.
- Starting a network marketing business can land you in a financial crunch since there is an equal chance that it may not take off as soon as you had expected. You should keep this in mind if you plan to bootstrap your business or payout of your own pocket.
Do you really need a big budget to start an MLM or Network Marketing Business?
As we discussed earlier, the entry point of network marketing is easier in terms of the initial investment. You can start with a minimum start-up cost of $1300 or take it all the way up to $11,600.
The amount you spend initially depends on how big an impact you want to create in the market. For example, the more you invest in research and analysis, the higher your chances of growing your network marketing business quickly.
Similarly, investing in efficient and expensive software can help automate your business processes, ultimately saving you the time and money you’d otherwise spend on personnel.
The more extensive your training and education sessions, the better the chances of your consultants growing a lucrative network.
The best thing about MLM or network marketing business is that it allows you to invest according to the needs and requirements of your business.
While the competition for this space is high, that also means that you have the opportunity to learn from established best practices. You can study similar businesses operating within the same niche to learn how big a budget you need to establish yourself.
If you are willing and ready to dedicate time and effort, MLM or network marketing is a great business idea. With a low initial capital requirement and easy to access market data, this lucrative business guarantees a high-profit margin if you play all your cards right.
We hope this article answered any queries you might have had about network marketing and the initial cost required to start an MLM business.
With the data provided above, you are in a better position to assess whether network marketing is the right fit for you.